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Public Debt

Public Debt

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Published by Learner84

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Published by: Learner84 on Nov 20, 2009
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03/19/2011

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Public Debt.
Public debt or
indebtedness of a central government expressed in money terms, isoften referred to as national debt. The debt is computed differently by nearly everynation. Some authorities exclude all government obligations other than those incurredby public borrowing from individuals.The U.S. national debt originated with the American Revolution and as of 2004amounted to more than $7.4 trillion. President RonaldReaganmade the debt acampaign issue in his successful presidential run (1980), but the national debt nearlytripled during his presidency. By the late 1990s, however, a federal budget surplusallowed President BillClinton to start paying down the debt—the first time this action had been taken since 1972. In 1998, Clinton presented the first balanced federal budget(with no annual deficit) since 1969. By 2002, however, the large tax cuts enacted underPresident G. W.Bush, combined with the effects of an economic slowdown andincreased expenditures on national security following the Sept. 11, 2001, attacks on theUnited States and the U.S. invasion of Iraq, led to new deficits and an increase in thenational debt.
I. Reasons for Government Indebtedness
Governments may borrow to meet temporary needs, as when estimated revenue fallsbelow or is exceeded by estimated expenditures. Short-term treasury notes, payable byincreased taxes or by greater economizing, may be issued, but such a debt should notbecome permanent. Nonetheless, many national goverments incur such debt becauseof an unwillingness to limit spending or increase taxes for fear of the politicalconsequences. Borrowing to finance public works, especially when widespreadunemployment exists, is another source of public debt and is justified in part by theirlong-term social utility. The largest public debts are incurred to meet emergencies, suchas war debts that arise when it is difficult to finance the extended activities of thegovernment by new or increased taxes, or when the government must borrow abroad tofinance the war effort..Public debt is advantageous in that part of the national funds are secured at an interestrate lower than that provided to private industry and in that the financial operations ofgovernment are funded on a permanent basis. It may also have an expansionary effecton employment and production during times of high unemployment. The disadvantagesare that unjustifiable projects may be undertaken because the full burden of payment ispostponed; that the government's demands may become so large that the interest rateon government bonds will rise to the point where money is diverted from privateenterprise; and that too great a debt may induce governments to depreciate currency ordefault on obligations.

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